MicroStrategy (NASDAQ: MSTR) lost over $1 billion in Q2 as founder Michael Saylor’s big bet on BTC took one hell of a paper hit.
Figures released Tuesday, August 2, show MicroStrategy’s revenue fell 2.6% year-on-year to $122.1 million in the three months ending June 30, while gross profit slid 5.2% to $96.9 million and net losses ballooned to $1.062 billion, of which $917.8 million was due to impairment charges on MicroStrategy’s vast BTC holdings.
Almost exactly two years ago, MicroStrategy embarked on a BTC buying spree based on Saylor’s abrupt conversion to seeing BTC as the future of everything. MicroStrategy’s simultaneous conversion into a BTC-based pseudo exchange-traded fund means very little attention is paid to the company’s analytic software operations anymore.
MicroStrategy currently holds 129,699 BTC, which are currently worth just under $2 billion in total, roughly half of what the company paid for the things. MicroStrategy’s average purchase price is $30,664 per token, nearly $8,000 higher than BTC’s current value.
Saylor’s most recent BTC buy in late June was a mere 481 tokens at an average price of $20,790, which, given that the current price is a couple of grand higher, means Saylor is actually ahead for once. But the fact that the company has not only used all its free cash to buy BTC but has also issued over a billion worth of new debt and borrowed hundreds of millions more to keep buying BTC makes many investors uneasy AF. MicroStrategy closed Tuesday’s trading up less than 1% to $278.26, roughly half its value when the year began.
There is a major downside to keeping all of MicroStrategy’s reserve assets in one basket because Generally Accepted Accounting Principles (GAAP) require companies to report declines in the value of digital assets as losses, even if the loss is purely on paper, while value gains aren’t recognized. Clearly aware of how foolish this makes Saylor look to the outside world, MicroStrategy unsuccessfully lobbied the U.S. Securities and Exchange Commission (SEC) to let it bend the rules.
Shuffling the deck chairs
Tuesday also saw MicroStrategy announce that Saylor will be giving up his CEO position to take up a new role as Executive Chairman while retaining his status as Chairman of the Board. Current president Phong Le will inherit Saylor’s CEO mantle. Saylor has been both CEO/chairman since his company was founded in 1989.
Saylor’s new exec chair position “will focus primarily on innovation and long-term corporate strategy,” which basically translates as “buy more BTC,” because that’s all Saylor seems to know how to do these days. But don’t take it from us. Saylor says his new role will allow him to “focus more on our [BTC] acquisition strategy and related [BTC] advocacy initiatives, while Phong will be empowered as CEO to manage overall corporate operations.”
Saylor may see his future in BTC advocacy, but the masses would do well to find themselves a more perceptive “crypto” evangelist. In March 2021, when BTC was trading at around $57,000, Saylor instructed people to “take all your money and buy” BTC, “figure out what you can sell to buy” BTC, and “mortgage your house and buy” BTC. With BTC currently worth less than 40% of that $57,000—after having slid as low as 30% as recently as June—anyone who took his advice might not own a house for much longer.
Watch me, mom! Mom! Are you watching? Mom? Watch me!
In keeping with Saylor’s messianic zeal, MicroStrategy’s earnings call was classed as a “webinar” that forced analysts and investors to sit through 20 minutes of Saylor proselytizing on behalf of BTC’s values—both real and imagined—before they actually got around to talking about their Q2 results. If you want a sense of the cornucopia of BTC hopium dispensed during this droning monologue, just watch the video below.
When the Q&A finally began 45 minutes in, Saylor was asked how BTC’s notorious volatility impacted his company’s digital asset strategy. His answer is worth quoting because it seems to speak volumes as to the man’s well-documented egomaniacal tendencies:
“The volatility means that (a) BTC is more interesting than less volatile assets, and (b) MicroStrategy is more interesting than companies holding less volatile assets. The phrase that comes to mind is ‘volatility is vitality’… the volatility just attracts attention and attracts capital. It makes the company much more interesting. Interest is important because the thing you don’t want is to be irrelevant to the world. When nobody knows you and nobody cares whether you succeed or don’t and no one knows what you do, that’s the kiss of death.”
Back in the heady dot-com bubble days of the late-90s, Saylor made a name for himself as one of the thought leaders of the new digital revolution. But in 2000, the U.S. SEC caught Saylor fudging MicroStrategy’s financial results to hide annual losses.
Saylor ultimately reached a settlement that included a fine of $350,000 and personal disgorgement of $8.3 million. Meanwhile, MicroStrategy’s shares nosedived, and Saylor’s net worth fell by $13.5 billion, including six billion lost in a single day, making him not only the biggest bubble-boy loser but the biggest single-day loser in history.
Post-crash, Saylor spent most of his time quietly slogging away at MicroStrategy’s controls, turning in the modestly profitable quarterly earnings that shareholders respect and the media ignores. It makes you wonder if Saylor’s late-stage embrace of BTC—he was predicting the demise of the technology in 2013 —was more emotional than financial.
Decentralization theater
Anyone still convinced that Saylor is a visionary genius should consider this next part carefully. During a recent online discussion, Saylor took shots at Ethereum, whose co-founder Vitalik Buterin recently claimed it had a roadmap that would take three to four years to implement. Only then will the tech (allegedly) make good on its longstanding promise to scale to permit a level of transaction volume that makes the chain anything more than a super expensive and slow developer sandbox.
Saylor claimed Ethereum wasn’t “technically sound” because the underlying protocol “has to run unmolested, unmodified for five to 10 years before you can conclude that it is decentralized and censorship-resistant.” Saylor said Ethereum’s ambitious roadmap meant “the protocol never stops mutating and the problem with an ever-mutating DNA structure is you’re going to end up with a monstrosity.”
Saylor has long held out that BTC is a commodity while ETH is a security, based on his view that BTC “follows Satoshi’s example … you create the software, you give it to the world with no economic motive, and the protocol is set forever. And no one changes it … If you change the protocol, you’ve probably instantiated a security. And now the problem is, if it’s a security, you’re trading it illegally, right, on unregistered exchanges without a license to trade a security and you haven’t disclosed all the risk factors of a security.”
Saylor is an unabashed BTC maximalist with laser eyes, which appear to have blinded him to the fact that his precious BTC has undergone numerous major alterations to its protocol, including the introduction of Segwit in 2017 and last year’s Taproot’ upgrade,’ both of which are actually deviations from the original Bitcoin protocol. Saylor might know this if he’d been a Bitcoin supporter from the start rather than an overcompensating late-adopter.
As for Saylor’s insistence that a digital asset can be a commodity only if it’s backed by a “completely decentralized protocol where nobody can change it even if they wanted to change it,” Saylor is actually describing Bitcoin SV, which has a locked base protocol that isn’t subject to tinkering in the same way that BTC is routinely revised by the shrinking BTC Core development team.
To sum up, based on Saylor’s benchmarks, BTC is as much a security as the ETH that he despises (and BSV isn’t). And that puts Saylor and his company neck deep in unregistered securities. But hey, it’s not like this is the first time Saylor has been on the wrong side of securities law.
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